Hot topics
Technical bulletin for human resources professionals:
- Auto-enrolment & Personal Accounts - are you prepared?
- Maternity Leave - new rules for non-cash benefits
- Loss of tax relief on pension contributions for higher earners - a complex and immediate challenge
- Cancer screening - a valuable new benefit
- Minimum retirement age - limited window for employees to access pension funds
- Holidays and sickness - Lords ruling changes employee rights
Auto-enrolment & Personal Accounts - are you prepared?
Employee pension auto-enrolment and employer contributions are to be made compulsory as part of the Government’s attempt to tackle the UK’s pension savings crisis.
Personal Accounts, a new type of pension scheme will also be introduced from 2012 to help employers to comply with their new duties where no Qualifying Workplace Pension Scheme (QWPS) is in place.
Penalties will be introduced for non-compliance and therefore preparation is needed now to ensure a smooth implementation of the legislation and that any interim measures taken over the next two years are compatible with the new regime.
Key details
- Automatic enrolment into a QWPS or Personal Account of all eligible jobholders between the age of 22 and state retirement age earning over £5,035 per annum with contributions based on all pay (salary, bonus, overtime, commission).
- Automatically enrolled employees must be given the opportunity to opt-out.
- Where employees have opted out, re-enrolment must take place, as a minimum, every three years
- Pension scheme must be available and communicated to all staff including agency workers although employer contributions only required for eligible jobholders and jobholders electing to join.
- Employers will be penalised for encouraging or inducing employees to opt out with fines up to £50,000 for non-compliance.
- A maximum annual contribution of £3,600 with indexation, with indexation, this looks like £5,000 by 2012.
- Stakeholder pension legislation will be repealed
- Expected contribution levels, increasing over the first five years are shown in the table below along with the start point for different sized organisations
Contribution levels for Personal Accounts
| Employee & tax relief (%) | Employer (%) | Total (%) | Who? | |
|---|---|---|---|---|
| 2012 | 1 | 1 | 2 | Employers with more than 250 employees |
| 2013 | 3 | 2 | 5 | Employers with between 50 and 249 employees |
| 2014 | 5 | 3 | 8 | Employers with less than 50 employees |
| 2015 | 3 | 2 | 5 | All |
| 2016 | 5 | 3 | 8 | All |
For an audit of how Personal Accounts will impact your business and an action plan for launch, contact Ed Smithson on 0845 362 8426, ed.smithson@truestone.co.uk.
Maternity Leave and non-cash benefits
Pregnant employees are entitled to 52 weeks Statutory Maternity Leave. This is divided into Ordinary Maternity Leave (OML) for the first 26 weeks and Additional Maternity Leave (AML) for the second 26 weeks. Previously an employee was entitled to receive non-cash benefits (provided for by her contract of employment) only across the period covered by Ordinary Maternity Leave. This entitlement has now been extended to cover Additional Maternity Leave. Plans in April 2010 to increase the payment period of Statutory Maternity Pay (SMP) which presently covers the first 39 weeks of leave (subject to qualifying service) to cover all 52 weeks of pay may now be scrapped in light of the economic climate.
What are non-cash benefits?
The legislation applies to non-cash, contractual benefits. Non-contractual benefits such as voluntary benefits, taken up and paid for by the employee are not included. The benefits covered include tangible assets such as company cars, mobile phones, home computers, living accommodation and services such as insurances (medical, dental, life, critical illness) covered by company insurance policies plus services such as employer provided health checks. Non-cash, non-transferable vouchers such as childcare vouchers are also included in the definition.
Whilst there has been no clarification from HMRC, a salary sacrifice agreement, which is regarded as a variation on the contract of employment, may change the status of some benefits accessed via salary sacrifice such as childcare vouchers. Though purchased on a voluntary basis by the employee, salary sacrifice makes the selection a contractual benefit. Under the new rules, the employer is required to provide the benefit.
The Sexual Discrimination Act 1975 and the provisions applying from April 2008, now states that a woman is entitled to the same contractual terms and conditions throughout maternity leave, both OML and AML. The suggestion is therefore that benefits purchased under a salary sacrifice arrangement are considered as contractual and will therefore need to be continued to be provided throughout OML and AML. This would include pension contributions. However, HMRC guidance on this matter is not clear.
Whether the scheme is an occupational arrangement or a contract based scheme (generally a Group Personal Pension) our view on pensions has always been the
employer continues to pay contributions based on the pre-maternity pay level and employee contributions are made based on actual pay received. When maternity pay ceases, so may the employer contribution.
HMRC guidance in May 2008 clarifies that SMP cannot be reduced by the terms of a salary sacrifice arrangement. The guidance also states that deductions from SMP are allowed in respect of PAYE, National Insurance and pension contributions. It is unclear whether pension contributions administered via salary sacrifice are regarded by HMRC as a non-cash benefit and therefore must be continued to be paid throughout maternity leave.
While the employee clearly has a vested interest inthis debate and the outcome, the pregnant employee’s SMP is based upon earnings, post deductions for salary sacrifice, prior to departure on maternity leave. Clearly their SMP would be higher in the event of exercising a lifestyle event and cancelling benefits purchased under the salary sacrifice arrangement.
For further information on this new legislation contact John Deacon on 0845 363 8426, john.deacon@truestone.co.uk.
Loss of tax relief on pension contributions for higher earners
Income Tax changes impact pension saving for high earners
This year’s Budget, and more recent amendments which have now been granted Royal Assent contained several measures aimed specifically at individuals classified as high earners:
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From 6th April 2010 the top rate of Income Tax will increase to 50% for those with income over £150,000
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From 6th April 2011 the Government intends to restrict tax relief on pension contributions for those earning over £150,000
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In order to prevent large pension contributions made by high earners benefiting from higher rate relief in the intervening period, the Government has introduced ‘anti-forestalling’ measures. These apply from 22nd April 2009 to 5th April 2011.
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For those deemed to be high earners, with an income of over £150,000 from all sources (in this or either of the two previous tax years) a Special Annual Allowance of £20,000 has been introduced for pension contributions. Unless arrangements to make pension contributions above this level can be shown to have been in place prior to 22nd April 2009 individuals may be subject to a tax charge of 20% on the excess over the £20,000 limit.
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In the recent Pre-budget Announcement the Chancellor extended the definition of high earners to include those with an income of over £130,000. The Special Annual allowance will now apply to those employees, as will the loss of tax relief on pension contributions after 6th April 2011 if they are taken over the £150,000 threshold by employer pension contributions. These changes apply from the 9th December 2009.
To assist employers in fulfilling their duty of care to high earners we have produced a full briefing note on the changes and who may be affected.
Contact Ed Smithson on 0845 362 8426, ed.smithson@truestone.co.uk.
New benefits - cancer screening
Breast cancer screening
Breast screening has been shown to reduce the number of deaths from breast cancer by detecting smaller tumours that are less likely to have spread. Early detection leads to a better survival rate and less treatment. Currently 1 in 9 women in the UK develop breast cancer, which adds up to 45,000 cases each year, but this number is predicted to rise to 1 in 7 women by 2024.
It is possible to provide employees with access to a personalised breast screening programme that is tailored to an individual’s needs. This may range from an on-site service including a breast examination as well as a calculation of their personal breast cancer risk. Beyond this, further screening packages are available off-site including mammography, MRI scanning and Digital Infrared BreastScan.
Breast screening costs from £75 for a single examination.
Skin cancer screening
Skin cancer is the most rapidly increasing of all cancers with 100,000 cases diagnosed each year in the UK. It is however treatable if detected early. As with breast cancer, skin cancer screening is designed to detect problems early and can be provided as a valuable new benefit to employees.
The process is carried out by a trained nurse on site and takes around 30 minutes. The screening results are immediate and anything considered suspicious is referred to a consultant dermatologist who will contact the employee within 48 hours. Screening is undertaken using non-invasive skin imaging technology.
Skin cancer screening can be offered to employees on a salary sacrifice basis resulting in a NIC and Income Tax saving for the employee and a NIC saving for the employer.
The service costs in the region of £65 – £75 for a single examination.
If you wish to consider cancer screening as part of your employee benefits programme contact Ed Smithson on 0845 362 8426, ed.smithson@truestone.co.uk.
Retirement age rising
In April 2010, the minimum retirement age, i.e. the age at which you are eligible to draw on your pension funds, is increasing from Age 50, to age 55.
If an employee was born between 6th April 1955 and 6th April 1960, they now have the opportunity to realise their retirement benefits prior to April 2010. This opportunity to access retirement funds, either the tax free cash element or the annuity income, or both, will from April 2010 not be available until age 55.
Members of occupational pension schemes would have to leave the scheme, though they do not have to leave employment. It should be noted that they may not be invited back into the pension scheme.
Holders of stakeholder or personal pension policies are at liberty to crystallise the benefits and would then be able to restart their pension saving immediately.
This is a complex area and any employer wishing to communicate this opportunity to their employees would be advised to inform their employees that it would be prudent to seek advice before taking any action.
For further information contact John Deacon on 0845 363 8426, john.deacon@truestone.co.uk.
Holiday pay accrual while off sick
Changes in the design of income protection policies are now in order, not only as a result of the Welfare Reform Act 2008 and the loss of the long term incapacity benefit, but perhaps also as a result of a recent ruling on the accrual of holiday pay whilst off sick.
In June 2009, the House of Lords ratified the decision made in January 2009 by the European Court of Justice that employees continue to accrue the right to paid holiday while off sick.
The belief is that the judgement covers the full amount of statutory leave for each year of absence. Further, it is also believed that the level of pay due is at 100% of the applicable salary on a year by year basis. So if the employee is in receipt of income protection, can the employer simply top up the payment to 100% for the holiday due? It is understood that this is unlikely and that employers will have to separately compensate the employee at 100% of pay.
Claims can be backdated to the date on which the Working Time Directive came into force, being 1998.
In addition, employees who fall sick while on holiday, are now allowed to claim the period off sick as additional holiday due. So as to help avoid any potential for abuse, we would suggest you review your internal procedures and perhaps consider an amendment on the process of claiming sick leave, with clear guidance for employees on the process to be adopted if illness occurs while on holiday.
For further information contact John Deacon on 0845 363 8426, john.deacon@truestone.co.uk.
Truestone and Truestone Employee Benefits are trading names of Truestone Asset Management plc which is authorised and regulated by the Financial Services Authority.
The information contained in this bulletin is based on our understanding of HMRC rules and guidance papers. The Financial Services Authority does not regulate tax advice. Please remember that any tax reliefs referred to are those currently applying, but levels and the basis of, as well as reliefs from, taxation are subject to change.
This newsletter is published solely to help clients be kept informed. It does not constitute a personal recommendation in any way whatsoever. You should contact Truestone for individual advice to establish the suitability of any of the subjects mentioned for your own circumstances or that of the corporate entity you represent.
